Community Banks to Consumer Bureau: Preserve Main Street Access to Credit

Reforms Should Help, Not Harm, Consumers and Mortgage Market

Washington, D.C. (June 11, 2012)—The Consumer Financial Protection Bureau (CFPB) should ensure that reforms it is considering for the mortgage system do not harm consumers by driving community banks from the market, the Independent Community Bankers of America (ICBA) and a coalition of state and regional associations that represent community banks said. ICBA and 38 state and regional banking associations called on the consumer bureau to provide a legal safe harbor with clear, well-defined standards for the “ability-to-repay” mortgage requirements it is developing so community banks can continue to meet the specific needs of their customers.

The CFPB is required by law to establish regulations that require mortgage lenders to have certain underwriting standards when determining a consumer's ability to repay a mortgage loan. Under the law, “qualified mortgages” (QM) would automatically satisfy the ability-to-repay requirements. The alternative to a legal safe harbor with clear, well-defined standards would be a rebuttable presumption of compliance, which would allow consumers to challenge the presumption of compliance even for loans that are deemed QMs.

“It is critical to the business of community banks that the QM be structured as a legal safe harbor with clear standards,” the coalition wrote in a letter to CFPB Director Richard Cordray. “The reality is many community banks will cease originating mortgage loans if provided with only a rebuttable presumption of compliance or will make mortgages only to the highest qualified borrowers where the risk of defaults is near zero. … In an already vulnerable economy, such policymaking will unintentionally harm, not protect, consumers.”

The coalition also called on the CFPB to include in the safe harbor balloon mortgage loans held in portfolio by the originating banks for the life of the loan, regardless of where and to whom the loans are made. For decades, community banks have provided balloon mortgage loans, which are safe and solid loans because the banks retain a vested interest in their performance. Community banks provide these loans as a service to their customers, especially in smaller markets and rural areas where loans may be ineligible for sale into the secondary market due to property or borrower characteristics. By using its authority provided by Congress to consider community bank portfolio to be “qualified mortgages,” the CFPB will offer much-needed protections for Main Street borrowers across the nation.